Prosus: FY2022 Earnings – Key Points to Know!
- Rupam Deb
- Jul 21, 2022
- 3 min read
Updated: Dec 2, 2024
Prosus released its earnings results for FY2022 (ending March 2022) in late June 2022. Overall, it continued to perform well (with group revenue growing 24% y/y), and has made significant capital allocation decisions that could improve the shareholder value significantly.
In this article, we first talk about the capital allocation decisions, and then discuss the latest financial performances.
1. Capital allocation decisions
One of the most important updates from the earnings was a capital allocation decision which could have a huge impact on shareholder value, where Prosus and Naspers announced the start of an open-ended share repurchase program of Prosus and Naspers shares. This program would be funded by regularly selling small numbers of Tencent shares.
The reason for this is because Prosus was trading at a price at an unacceptable level of discount from its net asset value (NAV) – a 56% discount (with share price of EUR 50 vs NAV of EUR 112 per share, on 22 June 2022).
Thus, by selling Tencent shares and using the funds to buy Prosus/ Nasper shares, the group would immediately unlock value for shareholders, by increasing the NAV per share and also increasing the exposure to Tencent (and the e-commerce portfolio) on a per share basis (and so the sale of Tencent shares for the repurchase is not a loss of confidence in Tencent’s business).
Let’s look at some numbers to illustrate the impact of this program.
As of 22 June 2022, Tencent was trading at ~HKD 370 per share, or a market cap of ~HKD 3.6 trillion (or ~EUR 434 billion). Prosus owned ~29% of Tencent, so that’s ~EUR 126 billion of value based on the market cap. However, Prosus was trading at a “cheaper” market cap that was lower than that amount, at ~EUR 103 billion.
Thus, if Prosus sells the relatively “more expensive” Tencent shares that it owns, and uses the proceeds to buy back its own shares which are relatively “cheaper”, it would actually end up owning more Tencent shares per Prosus share (although the total absolute Tencent shares owned by Prosus is lower).
Using some numbers to illustrate this, as shown in the table below:
As of 22 June 2022, Prosus owned ~28.9% of Tencent’s shares, which was worth USD 133 billion in total (based on a HKD 370 share price), or EUR 88 per Prosus effective share.
If Prosus sells USD 10 billion worth of stakes in Tencent (~2.2% of Tencent’s value), its total ownership of Tencent would drop to ~26.7%, or USD 123 billion in value.
However, it can use the USD 10 billion proceeds to buy back 191 million of its “cheap” shares (based on a USD 52 or EUR 50 share price), reducing its total share count by ~13% (from 1,420 million).
Due to the reduced share count, the value of Tencent’s shares owned by each Prosus effective share would actually increase to EUR 94, a ~6.8% increase (from the EUR 88 prior to the transaction).
A USD 20 billion or USD 30 billion repurchase amount would increase Prosus’ exposure to Tencent per share by a higher 16% and 29% respectively.
In addition to increasing Prosus’ exposure to Tencent on a per share basis, the buyback program also…
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